If you are a homeowner, you have likely heard of the concept of ‘energy plans,’ as many companies around Australia offer them. In particular, market-linked energy plans (MLEPs) have been growing in popularity over the past decade as a way for homeowners to secure lower prices on their power bills.
However, not all market-linked energy plans are cheap energy plans, and there is a great deal of variation in how different types of MLEPs function.
How Do Market-Linked Energy Plans Work?
A market-linked energy plan typically works by allowing you to lock into a set contract price for electricity over a specific period (typically between 6 and 12 months). The price you pay for energy is then locked in at the current price on the spot market and includes an additional amount of money.
This additional amount is set by the energy company offering the MLEP. It accounts for future rises in electricity prices above what was expected when signing up for the MLEP.
The energy company invests the money that you pay for your electricity. Depending on how well their investments do, this additional amount can go up or down over time.
If the investment does well, then this means that you will have paid less for your electricity than what it would have been if you had not signed up to the MLEP; if it does poorly, then you will have paid more.
As such, market-linked energy plans are best regarded as a type of ‘bet’ on how well your specific investments or savings package (the one that is included with your MLEP) will perform during the period that you are contracted into the MLEP for.
If your investments perform well, then the additional amount you have paid on top of standard electricity prices will be lower, and you will save money; if not, you will pay more than if you had just gone with a typical energy plan without signing up to an MLEP.
Why Might I Benefit from a Market-Linked Energy Plan?
There are several reasons that you might be looking to sign up for a market-linked energy plan. In particular, MLEPs and other cheap energy plans can provide the following benefits:
Savings on Your Electricity Bills Over Time
One of the most significant benefits of market-linked energy plans is that they can help you save money on your electricity bills over time.
Flexibility
Market-linked energy plans are also flexible in that they allow you to switch providers during the period of your MLEP. This means that if you find a better deal elsewhere, then you can switch to it during your contracted term.
Freedom of Choice
Finally, one other factor that often comes into play when people sign up for market-linked energy plans is that they are looking for freedom of choice.
Often, people will be interested in signing up to MLEPs because this allows them access to a broader range of energy providers than if they had signed up for an electricity plan without it.
While MLEPs can undoubtedly provide some tools to help you save money on your electricity bills, it is essential to note that they are not for everyone.